September 25, 2015

The most recent Renewable Energy Country Attractiveness
Index put out by EY highlights the dangers of the UK Government’s current
renewable energy policy.

EY published its quarterly Renewable Energy Country
Attractiveness Index (RECAI) this week, which saw a major reshuffling
of its top 10 most attractive countries in terms of their renewable energy
potential and growth. One of the biggest losers in the RECAI was the
United Kingdom, which dropped out of the top 10 for the first time since the
RECAI was first established in 2003. Specifically, according to EY, “A wave of
policy announcements reducing or removing various forms of support for
renewable energy projects has left investors and consumers baffled.”

This, despite concerted efforts on the part of the national
renewable energy industry, experts, and intelligence agencies the world over.

“We concluded in the previous issue of RECAI that
post-election stability provided the new Conservative government with a unique
window of opportunity to reconcile its somewhat contradictory energy objectives
and address the conflict between its liberalized market rhetoric and policy
that is clearly picking winners and losers, regardless of market signals. Based
on developments over the past quarter, however, it seems the UK Government has
decided to pass on that opportunity.”

Passed on the opportunity is has, as we have seen time and
time again over the past few months. EY highlights the “plethora of
policy-related announcements” that it believes has “sentenced the UK renewables
sector to death by a thousand cuts:”

support for onshore wind under the Renewables Obligation
(RO) scheme is now set to end on 1 April, 2016 — a year earlier than planned.

a proposal to close the RO for solar projects under 5 MW by
1 April, 2016, a year earlier than scheduled

a proposal to end the “grandfathering” to the RO for solar
projects less than 5 MW

the proposed removal of pre-accreditation that guarantees a
certain Feed-in Tariff level

Plans to impose an annual spending cap on the country’s
Feed-in Tariff scheme

Energy supplied under renewable source contracts will no
longer be exempt from the climate change levy with effect from 1 August, 2015

Road to Grid Parity

Projected overspend of the existing and past government
subsidies is often cited as the reason renewable energy subsidies are being
scrapped. A desire to keep “hard working” Britons from having to pay extra on
the electricity bills and taxes — ignoring for the moment the massive spend
taxpayers are forking out to subsidize the fossil fuel production and
generation industry. As EY notes, “new Energy and Climate Change Secretary
Amber Rudd maintains that the proposals are designed to minimize consumer
energy bills, while simultaneously claiming that falling costs mean many
renewables projects can survive without subsidies.”

The latter statement, ironically, is not one anyone is
disagreeing with — many within the industry believe that onshore wind and solar
PV are within three to five years of reaching grid parity. Only this month
we’ve seen UK developer PS Renewables claim that they have reached grid parity
on the development of large-scale solar projects.

However, the sticking point is the impact cutting renewables
subsidies will have on the short-term growth of the industry. EY believes that
“withdrawing support prematurely … arguably risks stalling or killing projects
that would otherwise maintain the momentum to get the market” to
its critical grid-parity moment.

A mixture of already-announced renewable energy subsidy
cuts, mixed messages from those in charge, and rumors surrounding the future of
vital renewable energy subsidy schemes like the Renewables Obligation and
Feed-in Tariff schemes has severely dampened investor confidence in the UK’s
onshore wind and solar industries. In a separate piece of research conducted by EY for
Scottish Renewables and published earlier this month, the country’s renewable
energy trade body, it was discovered that investors had been put off investing
in onshore wind because of recently-announced and rumored cuts to onshore wind
subsidies.

According to Scottish Renewables, the recent decisions by the UK
Government to end financial subsidies to the UK’s renewable energy industry —
including onshore wind development — is “having a significant impact on
investor confidence and their ability to lend to onshore wind farm developers.”

Is Offshore the Single Silver Lining?

One of the only potential silver linings to come out of EY’s
RECAI is the UK’s continued supremacy at the top of the offshore wind industry.
According to EY, the UK Government “apparently intends to redirect the money
saved by cutting support for onshore wind to less mature technologies such as
offshore wind” — an industry that the UK is already dominating, ranking 1st in
offshore wind in the RECAI for at least the last two reports. The UK is the
world’s largest offshore wind market, with just over half of all globally
installed capacity, and many believe that the UK can lead the way in reducing
offshore wind costs.

But concern remains over the likelihood of investors hanging
around in the UK solely for its offshore wind industry, or whether the existing
uncertainty “will generate sufficient developer and investor uncertainty to
trigger an exodus from the UK market,” having already prompted Forewind to scrap the 2.3 GW third phase of its huge Dogger Bank
offshore wind complex.

EY is right to question the inconsistencies in the current
UK system, and ask whether “the UK renewables sector continue to fight policy
tinkering by a Government with unclear motivations, or is this an opportunity
for it to throw off the shackles of policy dependency and establish itself at
the forefront of unsubsidised renewables in Europe?”

In the end, the UK Government looks to be content in
minimizing its financial involvement in its renewable energy industry, leaving
“throwing off the shackles of policy dependency” as the only legitimate means
of going forward.